The Constitutional Referendum: A Review

We present a review of Italy’s Constitutional Referendum that is due this December.

With the date of Italian constitutional referendum fast approaching, opinions are hugely divided on its implications, implying their inherent complexity and unpredictable volatility. With speculations of the outcome affecting the future of the European Union, everyone awaits December 4th, with apprehension.

The referendum, essentially a step to bring reforms to the stagnant and chaotic Italian governance, has the potential to prove catastrophic for the EU, especially coming on heels of Brexit and Donald Trump’s recent historic win at the US presidential elections. A ‘YES’ vote could lead to better governance in Italy along with a solidifying of Renzi’s standing not just in Italy but also the Eurozone. A ‘NO’ vote, according to speculations, could lead to a series of events. With Renzi’s pledge of stepping down as the PM in the event of his referendum not being accepted by the voters, it is likely that his Democratic Party would lose to the anti-EU Five Star Movement at the next election in 2018, if Italy doesn’t go to mid-term polls. This could give way to Italexit and the resultant beginning of EU degeneration.

However, some experts say that the panic surrounding the referendum is blown out of proportions. They believe that the referendum should not be seen as more than what it really is – an effort to bring order to Italian governance by changing some of its constitutional provisions. Should the referendum be rejected by the voters, it does not necessarily spell disaster for the Eurozone. They argue that in any event, Five Star Movement gaining power at the centre is a distant possibility.

Since Italy’s financial crisis, 4 Prime Ministers have assumed and quit office, without being able to improve the country’s economic conditions. With a consistently increasing government budget deficit and alarming currency devaluations, Italy’s economy was crippled until it accepted the Euro as its currency. However, the fiscal policies and political climate prevailing in Italy render it incapable to compete within the EU, Thus, Italy may have avoided possible economic collapse by being a part of the Eurozone but its economy is far from being healthy enough to survive in the aggressive climate of the EU, as its slumping GDP shows.

But the fact remains that Italy holds a strategic position in the EU and its possible exit would weaken the Euro. Experts even opine that it could even lead to the demise of the Euro. That, however, may be too far-fetched a conjecture. Moreover, Italy, despite its fragile economic position, remains a major attraction for EU investors, who are currently following the wait and watch policy. Yet, the huge potential impact of the referendum on the investor behavior can hardly be denied..

A “NO’ vote could send the fragile Italian banking system into chaos, especially given the magnitude of its non-performing loans and the proposed capital increases by major banks. This could create a domino effect throughout other European markets and impact the major currency equations across the globe. It could also adversely impact the stock markets of countries like Germany and France.

Renzi, with the referendum, seeks to restore the economy and provide sound financial infrastructure. Hence, a ‘YES’ vote is expected to open the doors to colossal politico-economic reforms lending long-lasting stability to the ailing Italian economy. It could strengthen not only the Italian banking system and market, but also reinforce Italy’s position in the Eurozone, also invigorating it in its turn. December is a crucial month for EU, Italy and the rest of the world.